IPTM3528 | Calculating gains: maturity, full surrender or assignment: commission rebated: examples

Example 1

• Andrew pays a premium of £200,000 into a new policy on 10 October 2017 through his financial adviser who rebates commission of £8,000 to Andrew. He surrenders the policy on 25 May 2019.

The surrender took place in the second tax year after that in which the premium was paid so in calculating the gain on the surrender of the policy the amount of allowable premiums in ‘total deductions’ must be restricted by the amount of rebate, namely to £192,000.

Example 2

• Susan pays a premium of £75,000 into a new policy – policy A – on 5 July 2015 through a financial adviser and receives a commission rebate of £3,000 in respect of this premium.

• She also pays £30,000 into an existing policy – policy B – on 15 August 2015 but does not receive a rebate of commission on this premium. She surrenders policy A on 19 August 2018 and policy B on 8 January 2019.

She paid a total of £105,000 in premiums into all policies in the tax year ended 5 April 2016. Since this exceeds £100,000 and policy A is surrendered in the third tax year after that in which the premium threshold is crossed, in calculating the gain on the surrender of policy A the amount of allowable premiums in ‘total deductions’ must be restricted by the amount of rebate to £72,000.

There is no effect on the calculation of the gain on policy B since there was no rebate of commission in respect of the additional premium paid on it.